The nation has not experienced this magnitude of layoffs and economic contraction since the Great Depression, many experts say, and recovery is unlikely to be swift. President Trump and Congress are racing to pass more relief money, but they failed to strike a deal Thursday on the details. Meanwhile, the $2 trillion package Congress approved last month is barely starting to get out as states and federal agencies that have been gutted for years struggle to process millions of aid applications from small businesses and the newly jobless.
Last week, 6.6 million Americans applied for unemployment benefits, the Labor Department said Thursday, a staggering number that would have been unthinkable a few months ago. It’s just shy of the record set the week of March 28, when 6.9 million people filed for aid. In the week of March 21, 3.3 million claims were filed.
“We have never seen anything like this," said Princeton University economist Alan Blinder. “This looks likely to be deep enough to qualify as a depression."
JPMorgan Chase predicts the unemployment rate will hit 20 percent and the economy will shrink by 40 percent in the second quarter, which runs from April through June. While such losses are deep and “astounding,” they are unlikely to be long-lasting, Blinder said. There’s hope that a vaccine or other preventive measure will be found relatively soon, which should prevent this downturn from turning into another Great Depression, which lasted over a decade.
“We are moving with alarming speed from 50-year lows in unemployment to what will likely be very high, although temporary, levels," Powell said in a speech Thursday at the Brookings Institution. “When the virus does run its course, and it’s safe to go back to work and safe for businesses to open, then we would expect there to be a fairly quick rebound.”
Treasury Secretary Steven Mnuchin has said it’s possible businesses might be able to reopen in May. Powell was more cautious, noting that most experts think the second half of the year is more likely.
The Fed chief called for a national discussion about what it will take to reopen the economy. Some have suggested masks and six-feet social distancing remain in place until widespread testing or a vaccine is available. Powell urged caution about moving too quickly to reopen.
“We all want to avoid a false start where we partially reopen and that results in a spike in coronavirus cases," he said.
Stocks continued to rally Thursday, with the Dow Jones industrial average gaining 286 points despite the dire jobs situation. Investors applauded the Fed’s latest aid. Research notes from many Wall Street banks said that parts of the economy, while frightening, appear to be bottoming out. JPMorgan Chase noted that hotel reservations, flights and subway ridership are down substantially, but they aren’t falling further.
“In just-released data through April 4, U.S. hotel revenue per available room tracked by Smith Travel were down about 80 percent over a year ago, with occupancy down 70 percent and average rates down 40 percent," JPMorgan wrote to clients. “All of these readings were similar to last week’s, suggesting a bottom has been reached.”
The Fed’s sweeping new loan programs unveiled Thursday will provide $2 trillion in additional loans to small, medium and large companies as well as cash-strapped states and cities. These latest Fed actions are in addition to slashing interest rates to zero in March and buying numerous government bonds in an effort to keep borrowing as cheap as possible for American families and businesses.
Still, the gravity of one in 10 Americans suddenly being out of work is hitting families and communities across the country. Several cities have experienced modern-day bread lines, with lines of cars stretching over a mile long as people wait to visit food banks and restaurants handing out free meals.
Government relief has been slow to reach people losing their jobs as states have been overwhelmed with claims. The Washington Post spoke with more than a dozen workers across the country who lost their jobs and filed a claim in March. The majority have not received money yet. To get by, they have dipped into savings, begged online for aid, and waited in line for hours at food banks.
“How are people supposed to live a whole month without income?” said Tammy Devitoe, a single mother living paycheck to paycheck as a waitress in New York. “I’ve had to resort to begging online to complete strangers just so I can have enough money to eat and pay my bills.”
Devitoe lost her job March 11, when the diner she worked at closed because of coronavirus fears. She applied the next day for unemployment help, but New York’s online form said she needed to call to complete the process. “That’s when the horror began,” she said.
Despite calling hundreds of times a day, she was unable to get through to anyone at New York’s unemployment office until March 31. She expects her first payment Monday — a month after she started the application process.
Out of desperation, she started a GoFundMe page to ask strangers for aid. She was heartened that over a hundred people donated, but others berated her for not saving or seeking a job at a grocery store during the pandemic.
Consumer spending is the backbone of the economy, and all indications are that it has plunged sharply as so many Americans lose their jobs or take pay cuts. The University of Michigan’s consumer sentiment index showed the largest drop ever Thursday, driven largely by people citing their fears about losing their jobs.
“Consumers need to be prepared for a longer and deeper recession, rather than the now-discredited message that pent-up demand will spark a quick, robust and sustained economic recovery,” said Richard Curtin, the survey director.
Economists say the millions of workers expected to file for unemployment in April will strain U.S. safety-net programs that help the poor. They are urging companies to furlough workers instead of doing a full layoff. A furlough usually allows workers to keep their health insurance and return quickly when business resumes. A study by Health Management Associates warned that more than 12 million Americans could lose employer-based health insurance for themselves and family members as layoffs mount.
Sen. Josh Hawley (R-Mo.) proposed Thursday that the U.S. government should follow the United Kingdom’s lead and pay people’s salaries during the national emergency, a move that has kept layoffs low there.
“Beginning immediately, the federal government should cover 80 percent of wages for workers at any U.S. business, up to the national median wage, until this emergency is over," Hawley said. “The goal must be to get unemployment down — now.”
The idea has been popular with liberal Democrats and shows how the economic calamity is causing lawmakers to cross party lines in ways that have not been seen in years in Washington.
Congress tried to encourage businesses to keep workers on by saying small-business loans will be forgiven if companies rehire workers and the bulk of the loan goes toward workers’ paychecks. But as problems have mounted with accessing the loans, many businesses have forged ahead with layoffs.
Ben S. Bernanke, the former Fed chair during the Great Recession and one of the leading scholars of the 1930s depression era, said what is happening now is like a hurricane slamming the whole planet at once. It’s deeply painful, but the United States — and the world — can avoid years of pain if governments take swift action.
“Unemployment is going to be high,” Bernanke said, but “the duration of this downturn is likely to be shorter than the 12 years of the Great Depression.”